Milady's Fashions, Inc., a discount retailer of women's apparel, has an excessively large inventory on hand and is in urgent need of additional cash. The company is bordering on bankruptcy (especially if the inventory has to be liquidated by sale to other stores rather than to the public), and about 15 percent of the inventory is resalable only at a discount drastically below cost. Faced with this financial crisis. Milady's approached several suppliers, one of which. Brent Brothers Apparel, Inc., was willing to loan Milady's \($300,000\) under certain conditions: First, Milady's was to submit audited financial statements for the express purpose of revealing the company's financial condition. Milady's engagement letter with Penting & Dunn, LLP stated explicitly that the loan decision would be based on the financial statements. Second, Brent Brothers insisted on a secured position in all the unsecured inventory, accounts receivable, and other related personal property. In response, a security agreement was drawn and a financing statement was filed and recorded.

In preparing the financial statements. Milady's valued the inventory at cost, which was approximately \($100,000\) over current fair market value, and did not disclose two secured creditors to whom substantial amounts were owed and who took priority over Brent Brothers' security interests. Penting & Dunn issued an unqualified opinion, believing Milady's financial statements were presented fairly in all material respects.

Six months later. Milady's filed for bankruptcy. Brent Brothers received \($125,000\) as its share in bankruptcy and is suing Penting & Dunn for the loss of \($175,000.\) Penting &

Dunn deny liability, claiming lack of privity and lack of negligence.

Required: 

Is Brent Brothers entitled to recover from Penting & Dunn? Why or why not?